"I think I was trying to suggest something about the duality of man, sir ... the Jungian thing, sir."
Private Joker, Full Metal Jacket

Monday, September 19, 2011

Poverty and the Fifties

In response to a post here last week showing that poverty fell more rapidly in the fifteen years prior to the initiation of the War on Poverty than it has since then, a commenter asserts that this was because we were "enjoying" the impact of government funded World War II and the Marshall Plan as well as "injection" of money into the economy through construction of the interstate highway system.

The idea the World War II "ended" the Great Depression through some type of Keynesian mechanism is quite dubious but let's review the bidding on our commenter's claim.

Federal spending as a percentage of GDP was averaged 17.8% during the period from 1950 through 1965. Since then, as poverty has remained relatively stable, it has averaged 20.9%.

Let's look at another way. From 1950 through 1965, nominal federal spending increased 77%. Between 1965 and 1980, it went up 399%. From 1980 through 1995, 156%. From 1995 through 2010, 161%.

The post war period was indeed unique. US businesses were largely immune from global competition since the rest of the industrial world had been largely laid to waste. That was not entirely a good thing but it did have positive ramifications for unionized oligopolies like the American automakers. But the notion that it was the halycon era of big government funded prosperity seems wrong.

The commenter says that the chart shows that poverty is hard to eradicate. That is my point precisely. More to come.

Read the first sentence of the post in question. Your first argument was that poverty declined just fine, thank you, before the advent of the Great Society. That poverty is hard to eradicate was your second argument, and on it we agree.

I had no idea that the fact that World War II - Keynsianism and central planning on steroids, ended the Great Depression and led to a boom was in question in any way, but so be it.

The boom of the 1950s was almost entirely thanks to World War II. That is hardly in doubt. First, rationing during the war led to fewer consumer goods being available; with everyone employed (including women for the first time) that meant they had nothing to spend their money on until the war was over; meaning demand for consumer goods went through the roof when rationing ended (if only the Bush II economy could say that - it was based entirely on household debt). The GI bill led to millions of newly educated men who could work good jobs, and it provided money for millions of former soldiers to buy houses, which had to be built. Easy access to those houses was provided by, you guessed it, the interstate highway system. The Marshall Plan helped Europe recover and because all of its industry was in ruins, guess who exported a boatload of stuff to them? You guessed it - us. Oh and World War II led to massive improvements in technology that provided the basis for all kinds of innovation, and the Korean and Cold Wars provided consistent demand for high-tech military hardware (even John Boehner defends that today, protecting useless weapons systems made in his district).

Oh and you did not address the fact that while all of this government-assisted economic growth was happening, the top marginal tax rate was 91 percent and unions were powerful. Your ideology would tell you the economy should have been in the tank, but somehow that didn't happen. Just like the economic boom after the 1993 tax increase, your ideology consistently fails, but that's the thing about ideology, most people are impervious to contradicting evidence.

Now, please don't take this to mean I think we need to have everything just like it was in 1950, or that I think we need a global total war to get out of this economic problem. Another guy too smart for ideology, Bruce Bartlett, has a great book about how sometimes one policy is right and sometimes it is wrong. You should read it. Even if you refuse to accept contradictory evidence, you might at least be entertained by it.

Indeed he was smart, or at leas the people who wrote the story about him were.

I have a sincere question for you. Some people argue we need social policies based on that story. Abortion, gays, blah blah blah. Why is it that those people are not consistent? After all, the most ignored passage in that work says rich guys won't get into heaven. So, if we need bible-based social policies, why not bible-based economic policies too?

About Me

I am President and General Counsel of the Wisconsin Institute for Law & Liberty and an adjunct professor of law at Marquette University Law School. The views expressed here are my own and not those of WILL or Marquette. They are offered in my personal capacity.